A prominent pensions expert has expressed serious concerns over companies which are offering cash for employees to leave final salary schemes and put money into a private pension instead.

Companies with big deficits in their pension funds have started to adopt the practice in order to reduce their liabilities.

Members can be offered thousands of pounds in cash but in return they lose a pension entitlement based on their final salary.

Malcolm McLean, chief executive of the Pensions Advisory Service, says transferring out is highly unlikely to be in member's long term interests:

This could be the next big mis-selling scandal

Malcolm McLean, the Pensions Advisory Service

"My concern would be when an individual is moving their pension benefits from a final salary scheme to a personal pension and they're not sure what they're going to get out of it. This could be the next big mis-selling scandal."

Stephen Oliver, a former store manager for frozen food company Iceland, is being offered around five and a half thousand pounds in cash to leave the Booker pension scheme, and invest his pension elsewhere. Stephen's scheme doesn't currently have enough money in its fund to pay its expected pensions payments in full. Last year it had a two hundred million pounds deficit. That's why he and around ten thousand other former employees are being offered this cash incentive to leave. But it's a difficult choice to make:

"Do you decide to buy a new car now, or do you prefer to invest and not be a burden to your dependents later on? It's not easy."

Guidance

The Pensions Regulator is warning pension fund trustees - who run the schemes - to make sure their members understand the possible consequences of what they're doing. John Ashcroft, the Regulators head of strategy, says Trustees must think carefully how they inform members about these offers:

We have issued the strongest guidance that we could to pension trustees

John Ashcroft, head of strategy, Pensions Regulator

"We have issued the strongest guidance that we could to pension trustees to enable them to take all steps they can to make sure members are properly advised."

Pensions experts like Malcolm McLean worry that now the Regulator has issued guidelines on pension cash inducements, it's given the green light for more firms to offer them. They're also concerned the information isn't clear enough. Trade unions say they're also receiving calls from employees asking for advice. Kay Carberry, the TUC'S Assistant General Secretary, says much stricter guidelines are needed:

"We'd like to see employers and pension fund trustees being obliged to look at all possible other ways of protecting a pension scheme before they are allowed to offer cash inducement in this way."
Instead of asking members to leave the company pension, some employers are offering cash in return for accepting a less generous final salary scheme.

Two years ago Walker Greenbank, which designs and manufactures wallpaper, had a substantial pension fund deficit .

It offered the schemes members a tax free lump sum, ranging from a few hundred up to forty thousand pounds, if they agreed to give up their right to an increase in their pension every year.

Julian Wilson, the firms company secretary, says four out of five members opted to take the cash:

"An individual could look at it and decide cash today is better than cash tomorrow. It's very much an individual choice."

BBC Radio 4's Money Box was broadcast on Saturday, 3 February 2007 at 1204 GMT.